Brooke Corp.’s Prospective Buyers Say ‘No’ to Deal

Company Declares Bankruptcy

Kansas-based Brooke Corp. has laid off most of its staff after prospective buyers withdrew an offer to purchase the financial services holding company. The Overland Park-based company and Brooke Capital Corp. filed for Chapter 11 bankruptcy protection Oct. 25 to prepare for a possible sale to two Kansas businessmen.

In September, the Bank of New York Mellon filed a lawsuit seeking more than $5 million from Brooke Corp. Citizens Bank and Trust Co. of Chillicothe, Mo., has sued to recover a $9 million loan to Brooke Capital that the bank says is in default.

Lysle Davidson, an insurance agent from Johnson City, Kan., and Terry Nelson, vice chairman of First State Bank in Norton, have withdrawn an offer to acquire Brooke’s insurance network saying there weren’t enough agencies left. Many of Brooke’s agents have secured releases from their franchise agreements. Nelson says the offer was contingent on 350 agencies remaining in the network.

Brooke Corp., Brooke Capital and Aleritas Capital Corp. are part of a financial services lending and franchising enterprise. The Brooke companies bought independent insurance agencies and other businesses from their owners with Aleritas funds and repackaged them as Brooke agency franchises sold to entrepreneurs using money borrowed from Aleritas. The Brooke companies also repackaged and resold the loans as securities to Wall Street investors and to groups of mostly small Midwestern banks, according to the Kansas City Star.

Albert Riederer, a former Jackson County prosecuting attorney and Missouri Court of Appeals judge, was appointed as a “special master” to take charge of Brooke and its affiliated businesses.

“Appointing a special master, Albert Riederer, rather than a receiver allows agent/owners to continue writing business as the litigation proceeds,” said Reid Nelson, a San Antonio, Texas, attorney representing more than 200 agent/owners in a suit against Brooke Corp. Nelson told Insurance Journal that some banks holding loans agents took out to pay the fee to become Brooke Corp. franchisees, are pressuring agent/owners to sign a letter saying they are responsible for their loans rather than wait for Brooke to go through bankruptcy litigation.

Nelson is advising the agent/owners to wait. He represents agent/owners from Texas, Louisiana, California, Florida, New Mexico, Colorado, Oregon, Washington, Michigan, Missouri, North Carolina, South Carolina, Tennessee Georgia, Illinois, Ohio, Minnesota and Virginia. Nelson said many Brooke franchisees involved in the lawsuit face bankruptcy themselves.